Stocks fell, the dollar hit multi-month highs, and US and German short-term bond yields parked at their highest levels since at least 2008, when Federal Reserve Chair Jerome Powell again put big interest rate hikes on the table to tame inflation . The broad MSCI index of global equities fell 0.3% ahead of Friday’s crucial US jobs data. Europe’s Stoxx 600 index slipped 0.3% and futures markets pointed to a steady start on Wall Street after the S&P 500 index fell 1.5% on Wednesday.
The MSCI global equities indicator remains about 4% higher for the year as some investors kept robust economic data in the United States and the Eurozone as grounds for optimism. This view clashed with the market’s reassessment of interest rate expectations and bond market signals that aggressive monetary tightening increases recession risks. “There are a lot of mixed signals out there,” said Eren Osman, Arbuthnot Latham’s managing director of wealth management, adding that he is currently reluctant to take “large underweight or overweight” positions in any key asset class.
The Fed is likely to have to raise interest rates more than previously expected in response to strong progress in the world’s largest economy, Powell said on Tuesday, the first day of his semi-annual, two-day monetary policy hearing before Congress. “If the body of data suggested that faster tightening was warranted, we would be willing to increase the pace of rate hikes,” Powell said.
US employers stoked inflation fears and hired 500,000 new workers in January, while economists polled by Reuters expect the official nonfarm payrolls report on Friday to show another 203,000 jobs were added in February. “What matters most is the employment number,” said Patrick Spencer, vice chairman of equities at RW Baird. “If you get another hot number, say 300,000 (new jobs) or more, then the market is going to get concerned.”
US Treasury yields continued to rise on Wednesday, with the two-year yield, which follows interest rate expectations, briefly hit 5.08% – the highest since 2007. The German two-year bond yield, meanwhile, hit 3.367%, the highest since 2008 .
According to CME’s FedWatch tool, markets are now pricing in a nearly 70 percent chance of a 50 basis point rate hike at the March 21-22 Fed meeting, up from about 30 percent a day ago. After a series of jumbo hikes over the past year, the Fed raised rates by 25 basis points last month.
A closely-watched portion of the US Treasury yield curve, which measures the gap between yields on two- and 10-year Treasury bills that’s taken as an indicator of economic expectations, stood at -107.3 basis points, its lowest, on Wednesday since August 1981 Refinitive data. Such an inversion is considered a reliable recession indicator. In forex markets, the dollar index, which measures the US currency against six major peers, rose to a 3-month high of 105.88 after rising 1.3% on Tuesday, marking the biggest daily gain since September .
The dollar was also up 0.2% against the yen after touching 137.90, its highest since December 15 earlier in the session ahead of Thursday and Friday’s Bank of Japan meetings. The Bank of Japan is expected to remain ultra-loose monetary policy, although analysts also expect it to phase out its complex monetary easing tool known as yield curve control at times this year. The euro slipped 0.11% to $1.0536, close to its two-month low. Brent crude fell 0.3% to $82.95 a barrel.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)
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